The Impact of Common Advisors on Mergers and Acquisitions
University of Alabama - Culverhouse College of Commerce & Business Administration
University of Alabama - Department of Economics, Finance and Legal Studies
Louisiana Tech University - Department of Economics and Finance
Willamette University - Atkinson Graduate School of Management
June 20, 2011
We examine the conflict of interest that an investment bank faces when advising both the target and acquirer in a merger or acquisition (M&A) by investigating how common advisors affect deal outcomes. We compare M&As with common advisors to deals in which targets and acquirers use different advisors and account for the endogenous nature of this choice. We find that (1) deals with common advisors are less likely to be completed and take longer to resolve, and (2) sharing advisors does not affect the wealth gains of shareholders of targets, acquirers or the combined firm and the post-acquisition performance of acquirers. We find some evidence that valuation multiples paid for targets and deal premiums for public targets are significantly lower in transactions with common advisors, suggesting that common advisors tend to favor acquirers over targets, with an eye on future investment banking business from the larger, surviving firm. But most of our results suggest that common M&A advisors lead to neither better deal outcomes by facilitating information flow between targets and acquirers, nor worse deal outcomes by influencing both sides to hasten deal completion.
Number of Pages in PDF File: 65
Keywords: Mergers, Acquisitions, Investment Banking, M&A
JEL Classification: G24, G34, K22
Date posted: March 17, 2011 ; Last revised: June 22, 2011
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